Question 1

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply,aggregate demand

Accepted Answer

A) increases,which increases real GDP and the price level 
B) increases,which decreases real GDP and the price level 
C) falls,which decreases real GDP and increases the price level 
D) increases,which decreases real GDP and increases the price level 
E) falls,which increases real GDP and the price level 
A) increases,which increases real GDP and the price level 
B) increases,which decreases real GDP and the price level 
C) falls,which decreases real GDP and increases the price level 
D) increases,which decreases real GDP and increases the price level 
E) falls,which increases real GDP and the price level

Question 2

If the interest rate rises,people hold

Accepted Answer

A) less money because its opportunity cost has increased 
B) more money because its opportunity cost has increased 
C) less money because its opportunity cost has declined 
D) more money because its opportunity cost has declined 
E) the same amount of money 
A) less money because its opportunity cost has increased 
B) more money because its opportunity cost has increased 
C) less money because its opportunity cost has declined 
D) more money because its opportunity cost has declined 
E) the same amount of money

Question 3

If money demand increases and the Fed attempts to keep interest rates stable,then

Accepted Answer

A) the money supply will increase 
B) the money supply will decrease 
C) velocity will increase 
D) velocity will decrease 
E) the Fed will sell government securities 
A) the money supply will increase 
B) the money supply will decrease 
C) velocity will increase 
D) velocity will decrease 
E) the Fed will sell government securities

Question 4

If the money supply decreases,the opportunity cost of holding money __________ and people will want to hold __________ quantity of money.

Accepted Answer

A) rises; a greater 
B) rises; a smaller 
C) does not change; the same 
D) falls; a greater 
E) falls; a smaller 
A) rises; a greater 
B) rises; a smaller 
C) does not change; the same 
D) falls; a greater 
E) falls; a smaller

Question 5

If the Fed had to choose between fixing the interest rate and fixing the supply of money,it would

Accepted Answer

A) always fix the money supply,so that the price level would be stable 
B) always fix the money supply,so that spending would be stable 
C) always fix the interest rate,so that investment would be stable 
D) always fix the interest rate,so that demand for money would be stable 
E) find neither alternative would be clearly better than the other 
A) always fix the money supply,so that the price level would be stable 
B) always fix the money supply,so that spending would be stable 
C) always fix the interest rate,so that investment would be stable 
D) always fix the interest rate,so that demand for money would be stable 
E) find neither alternative would be clearly better than the other

Question 6

Suppose the money demand curve shifts rightward.Which of the following is true about the Fed's options?

Accepted Answer

A) The Fed can keep the interest rate from rising only if it increases the money supply. 
B) The Fed cannot prevent the interest rate from rising. 
C) The Fed can prevent the interest rate from rising without changing the money supply. 
D) If the Fed expands the money supply,the interest rate will rise even further. 
E) The Fed should reduce the money supply if it wishes to prevent the interest rate from rising. 
A) The Fed can keep the interest rate from rising only if it increases the money supply. 
B) The Fed cannot prevent the interest rate from rising. 
C) The Fed can prevent the interest rate from rising without changing the money supply. 
D) If the Fed expands the money supply,the interest rate will rise even further. 
E) The Fed should reduce the money supply if it wishes to prevent the interest rate from rising.

Question 7

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

Accepted Answer

A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy 
A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy

Question 8

Exhibit 15-2  
-Given the demand for money in Exhibit 15-2,if the supply of money is given by the supply curve labelled S,the equilibrium interest rate and quantity of money would be

Accepted Answer

A) r and m 
B) r* and m* 
C) r' and m' 
D) r and m' 
E) cannot tell from the information given 
A) r and m 
B) r* and m* 
C) r' and m' 
D) r and m' 
E) cannot tell from the information given

Question 9

The demand for money

Accepted Answer

A) d and e are correct 
B) all of the following are correct 
C) decreases as the average selling price of a unit of output increases 
D) increases as GDP increases 
E) is increased by credit card usage 
A) d and e are correct 
B) all of the following are correct 
C) decreases as the average selling price of a unit of output increases 
D) increases as GDP increases 
E) is increased by credit card usage

Question 10

The demand curve for investment is graphed with __________ on the vertical axis and __________ on the horizontal axis.

Accepted Answer

A) the interest rate; investment 
B) investment; the interest rate 
C) the price level; investment 
D) investment; the price level 
E) real GDP; investment 
A) the interest rate; investment 
B) investment; the interest rate 
C) the price level; investment 
D) investment; the price level 
E) real GDP; investment

Question 11

The equilibrium interest rate is determined by

Accepted Answer

A) the Fed 
B) Congress 
C) the demand for money alone 
D) the supply of money alone 
E) both the supply of and demand for money 
A) the Fed 
B) Congress 
C) the demand for money alone 
D) the supply of money alone 
E) both the supply of and demand for money

Question 12

Which of the following would cause a downward movement along the money demand curve?

Accepted Answer

A) an increase in the interest rate 
B) a decrease in the interest rate 
C) a decrease in real GDP 
D) an increase in real GDP 
E) an increase in the price level 
A) an increase in the interest rate 
B) a decrease in the interest rate 
C) a decrease in real GDP 
D) an increase in real GDP 
E) an increase in the price level

Question 13

A decrease in the money supply causes interest rates to __________,investment spending to __________ and Gross Domestic Product to __________.

Accepted Answer

A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise 
A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise

Question 14

An increase in aggregate demand will have a smaller long-run effect on real GDP if the

Accepted Answer

A) aggregate demand curve is flat 
B) short-run aggregate supply curve is horizontal 
C) economy is well below potential output 
D) economy is already at potential output 
E) aggregate demand curve is fairly steep 
A) aggregate demand curve is flat 
B) short-run aggregate supply curve is horizontal 
C) economy is well below potential output 
D) economy is already at potential output 
E) aggregate demand curve is fairly steep

Question 15

As a result of expansionary monetary policy,

Accepted Answer

A) both aggregate expenditure and aggregate demand increase 
B) both aggregate expenditure and aggregate demand decrease 
C) aggregate expenditure increases and aggregate demand decreases 
D) aggregate expenditure decreases and aggregate demand increases 
E) aggregate expenditure remains unchanged; aggregate demand increases 
A) both aggregate expenditure and aggregate demand increase 
B) both aggregate expenditure and aggregate demand decrease 
C) aggregate expenditure increases and aggregate demand decreases 
D) aggregate expenditure decreases and aggregate demand increases 
E) aggregate expenditure remains unchanged; aggregate demand increases

Question 16

The relationship between the interest rate and the quantity of money demanded

Accepted Answer

A) is a direct relationship 
B) is an inverse relationship 
C) is nonexistent 
D) is a direct relationship when the interest rate is low and an inverse relationship when the interest rate is high 
E) is an inverse relationship when the interest rate is low and a direct relationship when the interest rate is high 
A) is a direct relationship 
B) is an inverse relationship 
C) is nonexistent 
D) is a direct relationship when the interest rate is low and an inverse relationship when the interest rate is high 
E) is an inverse relationship when the interest rate is low and a direct relationship when the interest rate is high

Question 17

Speaking of the demand for money

Accepted Answer

A) makes no sense in a modern society in which most people use credit cards 
B) makes no sense in a modern society in which most people use checks 
C) makes sense in a modern society in which most people use checks,since demand deposits are included in M1,but it does not make sense in a society in which the primary payment is by credit card 
D) makes sense in a modern society in which most people use credit cards,since credit cards are included in M1,but it does not make sense in a society in which the primary payment is by check 
E) is relevant even in a society in which primary payment is by credit card,since eventually all accounts must be settled with money 
A) makes no sense in a modern society in which most people use credit cards 
B) makes no sense in a modern society in which most people use checks 
C) makes sense in a modern society in which most people use checks,since demand deposits are included in M1,but it does not make sense in a society in which the primary payment is by credit card 
D) makes sense in a modern society in which most people use credit cards,since credit cards are included in M1,but it does not make sense in a society in which the primary payment is by check 
E) is relevant even in a society in which primary payment is by credit card,since eventually all accounts must be settled with money

Question 18

As the price level rises,money __________ causing interest rates to __________ and investment spending to __________.

Accepted Answer

A) demand rises; fall; fall 
B) demand rises; rise; fall 
C) demand falls; rise; rise 
D) supply rises; rise; fall 
E) supply falls; fall; rise 
A) demand rises; fall; fall 
B) demand rises; rise; fall 
C) demand falls; rise; rise 
D) supply rises; rise; fall 
E) supply falls; fall; rise

Question 19

Which of the following would most likely lower the velocity of money?

Accepted Answer

A) commercial innovations that facilitate exchange 
B) a lower inflation rate 
C) a decline in the effectiveness of money as a store of wealth 
D) a higher inflation rate 
E) paying workers once a week instead of once a month 
A) commercial innovations that facilitate exchange 
B) a lower inflation rate 
C) a decline in the effectiveness of money as a store of wealth 
D) a higher inflation rate 
E) paying workers once a week instead of once a month

Question 20

The money demand curve slopes

Accepted Answer

A) downward because the cost of holding money decreases as the interest rate decreases 
B) downward because the cost of holding money increases as the interest rate decreases 
C) upward because people demand more money as GDP increases 
D) upward because people demand more money as GDP decreases 
E) downward because people demand more money as the price level increases 
A) downward because the cost of holding money decreases as the interest rate decreases 
B) downward because the cost of holding money increases as the interest rate decreases 
C) upward because people demand more money as GDP increases 
D) upward because people demand more money as GDP decreases 
E) downward because people demand more money as the price level increases

Exam 16: Monetary Theory and Policy

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply,aggregate demand

If the interest rate rises,people hold

If money demand increases and the Fed attempts to keep interest rates stable,then

If the money supply decreases,the opportunity cost of holding money __________ and people will want to hold __________ quantity of money.

If the Fed had to choose between fixing the interest rate and fixing the supply of money,it would

Suppose the money demand curve shifts rightward.Which of the following is true about the Fed's options?

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

Exhibit 15-2 -Given the demand for money in Exhibit 15-2,if the supply of money is given by the supply curve labelled S,the equilibrium interest rate and quantity of money would be

The demand for money

The demand curve for investment is graphed with __________ on the vertical axis and __________ on the horizontal axis.

The equilibrium interest rate is determined by

Which of the following would cause a downward movement along the money demand curve?

A decrease in the money supply causes interest rates to __________,investment spending to __________ and Gross Domestic Product to __________.

An increase in aggregate demand will have a smaller long-run effect on real GDP if the

As a result of expansionary monetary policy,

The relationship between the interest rate and the quantity of money demanded

Speaking of the demand for money

As the price level rises,money __________ causing interest rates to __________ and investment spending to __________.

Which of the following would most likely lower the velocity of money?

The money demand curve slopes

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

Filters

If the money supply decreases,the opportunity cost of holding money and people will want to hold quantity of money.

People will hold money as the interest rate because they will __ other financial assets.

The demand curve for investment is graphed with on the vertical axis and on the horizontal axis.

A decrease in the money supply causes interest rates to ,investment spending to and Gross Domestic Product to __.

As the price level rises,money causing interest rates to and investment spending to __.